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Refocused food, ag supply chain urged

AGRICULTURE and food companies need to adopt a new supply chain model that focuses on longer-term supply agreements and more cooperative relationships among both upstream and downstream partners, according to an analysis published by Rabobank International.

The analysis examines how the operating environment for these companies is becoming increasingly more complex as new external influences compound traditional pressures and distract supply chain participants, according to the bank's report, "Winning Through the Supply Chain -- From Chasing Price to Adding Value."

The analysis urges companies to adopt a dedicated supply chain model that has the potential "to revolutionize the food and agriculture industry."

Such a model would make the industry more innovative, productive and sustainable, which is "vital" for the industry to deliver food security to a future global population of 9 billion people, according to the report.

The traditional pressures on the food and agriculture industry -- such as increasing prices for agricultural commodities -- are being compounded by new pressures, such as increased demand for corn and other commodities for biofuel production, which has created an argumentative food versus fuel debate, Rabobank said.

Currently, the dominant supply chain model is a linear one wherein producers, processors and retailers have distant, short-term relationships independent from the influence and interests of each other, Rabobank said. This model "is highly inefficient," restricts companies from responding to supply and demand dynamics, restricts innovation, limits productivity and results in wasteful processes, the report says.

In a dedicated supply chain structure, upstream producers and processors enter into longer-term "partnerships" with downstream customers, allowing "information and insight to be shared across the chain's length for the benefit of all participants," the report says.

Rabobank global strategist Justin Sherrard said this "closer cooperation will transform (the supply chain) from a transactional one that's centered on chasing price to a system that's focused on creating value."

He said this would decrease risk, improve access to capital, improve productivity, provide access to new markets and enhance brands and reputations, thus positioning companies for longer-term growth "to meet the overarching challenge to feed the world in the coming decades."

In its report, Rabobank calls on prominent "brands" in the supply chain to demonstrate leadership by sharing their experiences with the wider industry and calls on financial institutions to pursue "financing solutions that encourage and support companies in embracing dedicated supply chain thinking."

Cocoa initiative

Rabobank said one such brand leader is Mars, which released the cocoa genome sequence into the public domain in line with the company's commitment to sustainably source all of its cocoa needs by 2020.

Rabobank quoted Barry Parkin, director of global chocolate procurement and sustainability for Mars, as saying that "Mars believes in closer cooperation" upstream with suppliers and across the supply chain with other manufacturers, as well as with governments and non-governmental organizations, to achieve sustainability goals.

Mars is actively engaging all parties in an effort "to drive a step change" in cocoa yield, which is key to economic, environmental and social sustainability, according to Parkin.

Mars has already demonstrated that a three-fold increase in yield is realistic, and the challenge is "to roll this out to hundreds of thousands of small cocoa farmers" in countries around the world by getting the entire industry behind the initiative, he added.

Rabobank International is the North American agribusiness and food financial services business of Dutch-based Rabobank Group.